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    • Von Bomhard: "Firm focus on a profitable future" 

    • High standards with regard to business quality 

    • Objective for 2004: net profit of €2bn

    The new Chairman of Munich Re's Board of Management expects crucial growth in value for the Group to come from underwriting business: as the results for 2003 show, striking progress has already been made here. At the same time Nikolaus von Bomhard attaches great importance to investment policy. Further improvements in risk management will attune investments and underwriting even more closely to each other, thus enhancing earnings potential.

    "All units must be profitable"

    "All Munich Re units must be profitable in themselves and make a sustained contribution to the Group's success. We want to fulfil our shareholders' expectations on a lasting basis. That means implementing our strategy more rigorously than hitherto", said von Bomhard, elucidating his business policy guidelines.

    In reinsurance, the Group's strictly profit-oriented underwriting and product policy, backed by a clear allocation of functions and responsibilities, is paying off: the reinsurers have significantly improved their portfolio and already achieved a substantial profit in 2003, which they expect to repeat in the current business year. In the medium term, Munich Re aims to be the most profitable of the leading providers. The annual renewals of reinsurance treaties as at 1 April in Japan and Korea, like those preceding them at the turn of the year, have shown that risk-adequate prices and conditions are still obtainable and can ensure appropriate returns on capital.

    In primary insurance, Munich Re expects underwriting earnings to distinctly improve after a series of difficult years. With a new management organisation, the ERGO Insurance Group has established clear decision-making responsibility and accountability for its business segments, thus creating the basis for further enhancements in efficiency. Its ongoing cost-reduction programmes already had a positive effect on the administrative expense ratio in 2003, improving it to 7.2% (7.5%), and are scheduled to achieve annual savings of €300m by 2005. ERGO is introducing uniform processes and realising opportunities for synergies not only in corporate functions but also, and especially, in underwriting. Its well-known brands (VICTORIA, Hamburg-Mannheimer, DKV, D. A. S. and KarstadtQuelle Versicherungen) and its very successful multi-distribution strategy will be retained, with the recently concluded long-term cooperation agreements in health insurance with the Gerling Group, Zurich Group Germany and Deutsche Bank strengthening ERGO's distribution franchise further. The cost-saving measures taken by Karlsruher Insurance Group and Europäische Reiseversicherung last year are also starting to bear fruit.

    In the Munich Re Group's investment portfolio, which has a total balance sheet value of €171.9bn (up by 10%), the historically based overweight of shareholdings in the insurance and banking sector has been further reduced, in line with previous announcements. Besides selling its stake in Hypo Real Estate Holding, Munich Re has cut back its interest in Allianz to 12.2% and lowered its stake in HypoVereinsbank to 18.4% in conjunction with the latter's 2004 capital increase. Notwithstanding share price recoveries, the proportion of Munich Re's investments in equities at the end of 2003 – including long-term strategic shareholdings – was 15.1% (17.4%), representing a year-on-year decrease of more than two percentage points. Munich Re is not planning to reduce the overall proportion of equities further, but does intend to diversify its securities portfolio more broadly.

    Munich Re bases its investments on the current assessment of the stock markets and the requirements of its underwriting business, taking into account possible loss accumulations from catastrophes and typical payout patterns of long-term liabilities from life and non-life insurance. Investment strategy is geared to limiting fluctuations, reducing the risk capital employed and consequently increasing profitability.

    Greatly improved underwriting result in 2003

    Munich Re's underwriting profit improved to €2.0bn, showing a very substantial rise compared with the previous year's figure of only €11m. However, the unique tax situation and high writedowns on goodwill turned this result on its head. With a loss of €434m for 2003, Munich Re has drawn a line under three difficult years. Tax expenses totalled an exceptional €1.8bn, of which €1.1bn was for deferred taxes that initially have no effect on liquidity. On the basis of the new IAS rules, applied for the first time, writedowns on securities – mainly equities – amounted to €0.8bn (5.9bn).

    Shareholders' equity rose to €18.9bn (13.9bn), whilst off-balance-sheet valuation reserves on investments – before allocations to policyholders, minority interests and tax – totalled €1.8bn at the end of the year. The growth in shareholders' equity was due to the satisfactory all-round performance of the Group's reinsurance business, as well as to the positive trend on the stock markets from the second quarter onwards and Munich Re's capital increase (€3.9bn).

    The Munich Re Group succeeded in stabilising its total premium income at the high level of €40.4bn (40.0bn) in 2003. Disregarding currency translation effects, gross premiums in reinsurance grew by 9.8%. Owing to the weak dollar, however, premium income in euros showed a slight fall to €24.8bn (25.4bn).

    Life and health reinsurance, with premium of €6.9bn (6.6bn), contributed a share of 27.7% (25.8%). In life reinsurance, there was growth in attractive new business, especially in the UK and North America. Embedded value, the yardstick for valuing life reinsurance business, was increased markedly to €3.9bn, a growth rate of 7.7% (or 15% after elimination of currency translation effects). At 13.3%, operating earnings on the 2002 embedded value clearly surpassed the target of 10%.

    Improved prices and conditions characterised the pleasing picture in property-casualty reinsurance after recent treaty renewals. The very good organic growth in original currencies was mainly due to premium increases and to new business at risk-commensurate prices and conditions, but this was more than offset by the adverse impact of the strong euro, so that altogether premium fell to €17.9bn (18.9bn). With a combined ratio of 96.7% (122.4%) in non-life reinsurance, Munich Re more than met its target for 2003, this trend being confirmed by the fourth quarter figure of 95.8% (previous year: 108.4%). All in all, the reinsurance group earned a net profit of €1.6bn (2.3bn).

    Premium income in primary insurance was up 6.3% to €17.6bn. The life insurers, which make up the largest business segment, contributed a high proportion of this growth, increasing their premium income by 6.6% to €8.0bn. Premium in health insurance climbed to €4.5bn (4.2bn), partly due to premium adjustments in Germany where, however, new business production was curbed by the continuing debate on health reform. Premium income in property-casualty insurance rose by 5.0% to €5.1bn, with the combined ratio falling further to an outstanding 96.4% (99.9%).

    Owing to favourable claims experience and a lower expense ratio of 36.4% (37.5%), primary insurance business closed with an underwriting profit of €0.2bn, an improvement of €0.9bn on the previous year. However, losses from the past years' bear market on the stock exchanges still had to be absorbed, as well as exceptionally high tax expenses: writedowns and losses on the disposal of equities amounted to €3.5bn, whilst the tax burden totalled €789m. In addition, writedowns of €581m were made for impairments of goodwill, so that the loss for the year in this segment came to €1.1bn.

    (The Munich Re Group's main figures for the business year 2003 are presented in the attached table).

    Objectives for the business year 2004

    For the current business year, Munich Re is aiming to maintain its underwriting results at the good level achieved last year. The goal in both reinsurance and primary insurance is a combined ratio of no higher than 97% again. The target for embedded value operating earnings in life reinsurance and in life and health insurance is 10% in relation to embedded value at the end of 2003. Altogether, given a stable capital market and normal claims experience, the Munich Re Group's objective is to record a Group profit of €2bn for 2004 and a sustainable return on equity of 12% after tax as from 2005.

    The Supervisory Board has approved the Board of Management's dividend proposal for the Annual General Meeting, i.e. the payment of an unchanged dividend of €1.25 per share for the business year 2003. As far as future dividend policy is concerned, von Bomhard announced that the amount distributed would be geared more closely to the profit situation in the respective business year.

    This announcement contains and refers to statements relating to the future. Such forward-looking statements are based on current expectations, estimates, forecasts and prognoses as well as assessments and assumptions of the management of Munich Reinsurance Company. Such statements contain in particular comments regarding plans, strategies and outlooks. Words such as "expect" and similar forward-looking expressions are no guarantee that events or results will actually materialise in the future and are subject to risks, uncertainties, and assumptions that are difficult to foresee. Therefore, actual consequences and results could deviate substantially from those anticipated in these forward-looking statements.

    The Annual General Meeting will take place at 10 a.m. on 26 May 2004.

    Münchener Rückversicherungs-Gesellschaft
    signed Dr. von Bomhard          signed Küppers

    This media information contains forward-looking statements that are based on current assumptions and forecasts of the management of Munich Re. Known and unknown risks, uncertainties and other factors could lead to material differences between the forward-looking statements given here and the actual development, in particular the results, financial situation and performance of our Company. The Company assumes no liability to update these forward-looking statements or to conform them to future events or developments.